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1 United States District Court Southern District of New Case 1:13-cv-07060-CM-KHP Document 488 Filed 01/26/21 Page 1 of 45 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK MARVIN PEARLSTEIN, Individually And On Behalf of All Others Similarly Situated, Plaintiffs, No. 13 Civ. 7060 (CM) -against- BLACKBERRY LIMITED (F/K/A RESEARCH IN MOTION LIMITED), THORSTEN HEINS, BRIAN BIDULKA, and STEVE ZIPPERSTEIN, Defendants. ORDER GRANTING PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION McMahon, C.J.: On September 29, 2017, Lead Plaintiffs Todd Cox and Mary Dinzik (“Plaintiffs”) and additional Plaintiffs Yong M. Cho and Batuhan Ulug1 filed the Second Consolidated Amended Class Action Complaint (“SAC”), the operative complaint in this action, against Defendants BlackBerry Limited (“BlackBerry” or the “Company”), its former Chief Executive Officer Thorsten Heins, its former Chief Financial Officer Brian Bidulka, and its Chief Legal Officer Steve Zipperstein (collectively, “Defendants”) for violations of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., (the “Exchange Act”). (“SAC” ¶ 1, Dkt. No. 84.) Plaintiffs bring this federal securities class action on behalf of the purchasers of BlackBerry common stock between March 28, 2013 and September 20, 2013 (the “Class Period”). (Id.) They allege that Defendants made a series of materially false and misleading statements and omissions concerning the Company’s new BlackBerry 10 smartphones (“BB10s”) during the Class Period. (Id.) 1 Cho and Ulug were dismissed from this case. (See Dkt. Nos. 338, 409, 413, 417.) They appealed their dismissal to the Second Circuit, where their appeal is currently pending (No. 19-3376). 1 Case 1:13-cv-07060-CM-KHP Document 488 Filed 01/26/21 Page 2 of 45 In short, Plaintiffs allege that Defendants’ misstatements and omissions maintained the price of BlackBerry’s stock or otherwise prevented it from falling over the course of the Class Period. Thus, when Plaintiffs bought BlackBerry common stock during the Class Period, they did so at an artificially inflated price. They were harmed when the stock price dropped as these misrepresentations were revealed throughout the Class Period. (Id. ¶¶ 66-67.) Plaintiffs now seek to certify a class of “all those who purchased or otherwise acquired the common stock of BlackBerry Limited on the NASDAQ during the period from March 28, 2013 through and including September 20, 2013 (the ‘Class Period’), excluding Defendants, officers, and directors of BlackBerry Limited, members of their immediate families and their legal representatives, heirs, successors, or assigns, and any entity in which Defendants have or had a controlling interest.” (Mem. in Supp. of Pls.’ Mot. for Class Certification (“Pls.’ Br.”) at 13, Dkt. No. 464.) For the reasons that follow, Plaintiffs’ motion is GRANTED. I. Relevant Factual Background The allegations of the SAC are accepted as true for purposes of the instant motion. See Waggoner v. Barclays PLC, 875 F.3d 79, 86 n.5 (2d Cir. 2017), cert. denied, 138 S. Ct. 1702, (2018) (citing Shelter Realty Corp. v. Allied Maintenance Corp., 574 F.2d 656. 661 n.15 (2d Cir. 1978)). The Court presumes the parties’ familiarity with the facts of this case, which were recited in Opinion #105318 re: Motion to Dismiss the Consolidated Amended Complaint (Dkt. No. 54), Opinion re: Motion to Amend/Correct Amended Complaint (Dkt. No. 81), and this Court’s Decision and Order Denying Defendants’ Motion to Dismiss the Second Amended Complaint (Dkt. No. 115) – which addressed the new allegations included in the SAC. The following provides facts pertinent to class certification. 2 Case 1:13-cv-07060-CM-KHP Document 488 Filed 01/26/21 Page 3 of 45 In brief, Plaintiffs allege that Defendants (i) made false and misleading statements about the success of BlackBerry and the BB10s (SAC ¶¶ 75-91) and (ii) issued false and misleading financial statements regarding the same (id. ¶¶ 92-146). The SAC alleges that Defendants made misstatements and omissions on March 28, 2013, April 12, 2013, August 12, 2013, and June 28, 2013. In his report (the “Feinstein Report”), Plaintiffs’ expert Dr. Steven P. Feinstein identifies additional misrepresentations made on these dates, as well as misrepresentations made on two other dates within the class period, April 11, 2013 and April 29, 2013. (See Steven. P. Feinstein, Rep. on Loss Causation & Damages, (May 29, 2020) (“Feinstein Rep.”) at ¶¶ 31-40, Dkt. No. 466- 1.) Plaintiffs assert that the truth was revealed by a series of partial disclosures: (i) the Detwiler Fenton and ITG reports on April 11, 2013; (ii) BlackBerry’s Q1 FY 2014 earnings announcement and conference call on June 28, 2013; and (iii) BlackBerry’s preannouncement of its Q2 FY 2014 financial results on September 20, 2013 (Id. at ¶ 39.) The following is a list of the misstatements and the disclosures alleged in the SAC and the Feinstein Report: a. March 28, 2013 Alleged Misstatements and Omissions • On March 28, 2013, BlackBerry filed a Form 40-F with the SEC for the fiscal year ending on March 2, 2013, issued a press release, and held an earnings call. The Form 40-F touted a successful transition to the BlackBerry 10 platform and described the BB10 launch as “the beginning of the organization’s transition to becoming a leading mobile computing organization.” (SAC ¶ 76.) The Form 40-F recognized revenue on a sell-in basis and did not record a charge for supply commitments. (Id. ¶¶ 30-32.) Plaintiffs allege this violated Generally Accepted Accounting Principles (“GAAP”) and misled investors due to the uncertain sale price of the Z10 – the first of two BB10 models released during the Class Period – based on excess inventory in the distribution channel, larger than expected returns, and the likelihood of price concessions, among other reasons. (Id. ¶¶ 30, 103-112.) The Feinstein Report adds that BlackBerry concealed that it had justified initial prices using outmoded pricing studies. (Feinstein Rep. ¶ 32(x).) 3 Case 1:13-cv-07060-CM-KHP Document 488 Filed 01/26/21 Page 4 of 45 • In the March 28 press release, Defendant Heins said the Company had “return[ed] to profitability in the fourth quarter,” and that “Customers love the [BB10] device and the user experience.” (SAC ¶ 78.) Defendants omitted that BlackBerry’s data showed consumer scores were well-below expectations – largely due a lack of applications and usability problems – and Z10 return rates with certain carriers were unusually high in the UK and Canada. (Feinstein Rep. ¶ 32(vi).) • On the March 28 earnings call, Defendant Heins stated that the Company had “regained the confidence and excitement of our carrier distribution partners” with the BB10 launch. He also stated that, “The initial early global demand for the 10 has been better than anticipated, and our recent announcement of the largest single purchase order in our history, for 1 million units, is also indicative of a strong initial support and demand.” (SAC ¶ 80.) Heins represented that “two-thirds to three-quarters” of the BB10s had already “sold through.” (Id. ¶¶ 111-12.) The Feinstein Report adds that BlackBerry stated on the call that it had “just started selling in the US, and the launch is meeting our earlier expectations,” and that “55% of the Z10 Customers globally are coming from platforms other than BlackBerry.” (Feinstein Rep. ¶ 32(viii), (xi).) b. April 11, 2013 Partial Corrective Disclosures • On April 11, 2013, research and investment firm Detwiler Fenton published a report (the “Detwiler report”) revealing that “key retail partners have seen a significant increase in Z10 returns to the point where, in several cases, returns are now exceeding sales.” (SAC ¶ 83.) The Feinstein Report adds that the biggest customer complaints were “the unintuitive nature of the user interface, the maps app and the lack of apps,” and that BlackBerry would “have minimal success in attracting new users to its platform.” (Feinstein Rep. ¶ 71.) • The Feinstein Report also notes an analyst report published by ITG on April 11, 2013. (Id. ¶ 72.) The ITG report stated that “the clear takeaway from the independent dealer channel is that the US launch of the Z10 started poorly and weakened significantly as the days passed- relative to comps at both AT&T and Verizon.” (Id.) c. April 11, 2013 and April 12, 2013 Alleged Misstatements and Omissions • On April 11, 2013, BlackBerry issued an email response to the Detwiler and ITG reports. (Id. ¶ 34.) It stated that reports about high levels of returns of Z10s are “absolutely false. Our data shows that return rates for BlackBerry Z10 devices both in the U.S. and on a global basis are in line with or better than our expectations and are consistent with return rates for other premium smartphones in the market today.” (Id.) • However, a criminal action against James Dunham, Jr. (the “Dunham Action”) confirmed that the veracity of the facts underlying the Detwiler report. (SAC ¶ 20.) • On April 12, 2013, BlackBerry issued a press release in response to the Detwiler report. BlackBerry denied the report’s claims that customer returns of the BB10s were exceeding sales. (Id. ¶¶ 83-84.) Defendant Heins stated the BB10 sales were “meeting expectations” and 4 Case 1:13-cv-07060-CM-KHP Document 488 Filed 01/26/21 Page 5 of 45 that the data BlackBerry collected showed that “customers are satisfied with their devices.” He also stated that, “Return rate statistics show that we are at or below our forecasts and right in line with the industry.” (Id. ¶ 84.) Defendant Zipperstein called the Detwiler report’s comments about the BB10 return rates “materially false and misleading,” and called on the authorities to investigate. (Id.) The Feinstein Report adds that in the same press release, BlackBerry reported that Verizon had “refuted” claims that “Z10 devices were being returned in unusually high numbers.” (Feinstein Rep.
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